Decentralized Exchanges: DeFi Lending Platforms in the Crypto Space

Lending is an integral part of finance and banking that helps give people a boost in reaching their financial goals. Individuals or institutions lend money to those who need it for a variety of reasons. Whether that be to start their own business, to go to school, to buy a home, etc. Whatever the reason, lending helps facilitate the flow of money in the economy as it is continually borrowed and shared. These sorts of traditional lending practices are also available in the crypto space, as the use of lending platforms has become increasingly popular in crypto today. 

The biggest difference between traditional and Defi lending is that typically getting approved for a loan by a bank or other financial institution can prove to be tedious, requiring lots of documentation. Not to mention, time-consuming as they can take days or weeks to be approved. In contrast, DeFi lending is peer-to-peer (P2P), facilitating a direct relationship between both parties.  Defi lending consists of lending cryptocurrencies in exchange for interest. This is an opportunity for individuals to grow their digital asset portfolios as they continue to see steady growth in the market overall. These trades consist of both the lender and borrower in a transaction backed by collateral in the form of crypto assets. Lenders will utilize smart contracts in order to make their assets available for lending. Lending exchanges can be conducted and implemented through a variety of different DeFi platforms such as Aave, Compound, SushiSwap, Uniswap, and many more. These platforms allow and support various different cryptocurrency pools including Ethereum (ETH),  DAI, USDC, USDT, etc. 

Aave

Coming to fruition in 2017, Aave is a secure and audited DeFi lending platform. This liquidity market protocol makes it easy for both borrowers and lenders to use their services. With its open-source contract, decentralized apps and other third parties can access the protocol as well, driving up value. The protocol is currently valued at over $4.8 billion dollars with assets such as DAI and USD coins seeing millions borrowed. Borrowers in AAve receive LEND tokens whereas Lenders will receive aTokens, each providing separate benefits. Lenders will benefit from APY (Annual Percentage Yield) percentages based on borrowers’ interest rates. On the other hand, borrowers will be freed of any transaction fees when using the LEND token. Additionally, if a LEND token is used as collateral, all borrowers will be eligible for a discount. These perks, along with AAve users’ ability to compare and select variable or stable interest rates make it a user-friendly, flexible protocol. 

Compound 

Compound is a DeFi blockchain-based interest-based protocol that securely allows individuals to borrow and lend crypto without having to deal with the hassle of third parties. As your crypto assets are lent to the Compound wallet, you will gain interest on those assets. In terms of borrowing, Compound makes this feature incredibly accessible to any person, as there is no administered credit score check as traditional banks may have. When lending or borrowing, one will be given ‘C-Tokens’ that can be manipulated in a variety of different decentralized applications. Additionally, the COMP token is governed by users that own 1% or more of the COMP protocol. 

SushiSwap 

With accessibility at the forefront of their mission SushiSwap’s motto “with sushi, everyone can be a chef” has held true. SushiSwap has become an increasingly popular decentralized exchange protocol, since forking from Uniswap in August 2020. This protocol runs on the Ethereum blockchain and is an automated market maker (AMM) exchange. Many people turned to SushiSwap after the older popular protocol, Uniswap, forked. Unlike Uniswap, Sushi created their own native token in order to increase profits from returns, gaining them an abundance of users. Once you download a crypto wallet, you will be able to see the returns each pool will provide and which ones you may want to add to, or swap other tokens for. Uniswap has since kicked things into high gear, releasing their native token, UNI in September of 2020. Their main differences today include user experience, liquidity rewards, and overall revenue.

While there are many valid debates for which Decentralized Exchange (Dex) is the best, or most functional, Decentralized Exchanges will continue to gain popularity as the user has the complete ability to control their funds, providing a more flexible and open way to lend and borrow money as a whole.

By Abigail Almonte

Harvest Finance Hacked: Flash Loans and How to Mitigate Risk of Loss

Harvest Hacked and how to protect against losses

Weekly Analyst Thoughts

This past weekend, Harvest Finance, a Defi yield farming protocol, was hacked using a Defi transaction mechanism called a flash loan. A flash loan is a specific type of transaction where the borrower must repay the loan in the same blockchain transaction. If the borrower does not repay the full loan (principal + interest), the transaction reverts, so as to seem like the flash loan never happened. Like Harvest, Aave also supports flash loan transactions and credits much of its meteoric 2020 price rise to this feature.

The Harvest Finance attack was executed through the Curve Finance Y pool with a flash loan. As seen below, Harvest’s near $3 billion in volume and over 170% APY raised concerns that there was irregular activity in the Curve Finance pool.

Source: Curve.fi

The takeaway from this clever arbitrage on Harvest Finance is that even if a yield farming protocol has multiple layers of audits (as Harvest did), it can still be vulnerable to attacks. So, don’t let the fact that a protocol is audited give a false sense of security when investing in Defi yield farming protocols. Instead, it is safer to diversify risk by investing with several reputable yield farming platforms (Ex: Uniswap, Balancer) to mitigate the risk of lost funds through sophisticated flash loan attacks.

By Jacob Stelter

Balancing Act: Balancer Brings Automatic Rebasing to Defi

Balancer Incorporates Stablecoin Rebasing to Defi

Weekly Analyst Thoughts

Ampleforth-USDC Smart Pool

Before Uniswap, decentralized exchanges were plagued with low liquidity and trade volumes. Decentralized exchanges had orderbooks, complicated cryptocurrency wallets and several functional problems for users. The advent of automated market making by Uniswap revolutionized decentralized exchanges. The AMM model consists of liquidity providers who provide 50% of one asset and 50% of another asset into a pool and earn a 0.3% fee anytime someone trades one asset for the other inside the pool. However, one big problem that comes with the AMM model is the impermanent loss for liquidity providers. An impermanent loss is what an LP incurs when they provide liquidity to a pool and the assets in the pool diverge from the price established when the liquidity was first provided. It is called impermanent loss because the 0.3% trading fee revenue is meant to offset the loss from providing liquidity, but in some cases where the asset price diverges too much from the other asset, the impermanent loss could become a permanent loss.

The Ampleforth-USDC Smart pool on Balancer aims to mitigate impermanent loss with a smart contract that automatically rebalances the Ampleforth-USDC pool to a 50-50 weighting based upon Ampleforth’s daily rebases. Ampleforth is an elastic cryptocurrency that has a target value of $1. As Ampleforth trades above $1, the token does an automatic rebase where it increases the AMPL supply to push the value down to $1, which signals the Balancer Smart pool to adjust the AMPL-USDC weightings to mitigate impermanent loss. In summary, if a liquidity provider is looking to mitigate impermanent loss risk and is looking for innovation in the Stablecoin pooling space, look no further than the AMPL-USDC smart pool on Balancer.

By Jacob Stelter

Kucoin Hack: Guarantee the Safety of Your Digital Wallet

Sarson Funds: Protect Your Digital Assets After Kucoin Hack

Weekly Analyst Thoughts

This week, I want to highlight the dangers of centralized finance (Cefi) and hot wallets (cryptocurrency wallets connected to the internet) by reflecting on the recent $150 million-dollar KuCoin hack. One of the major problems with Cefi exchanges like Coinbase, Kraken, Bittrex, and KuCoin is that the cryptocurrency user does not actually control the asset. The Cefi exchanges control the funds with private keys, making them a honeypot for hackers due to the large amount of money that is stored on these exchanges. There is a phrase in the cryptocurrency community to hammer home the point of Cefi exchanges: “Not your keys, not your coins.” If cryptocurrency users and investors continue to relinquish their private keys to these Cefi exchanges, these hacks will continue to occur. A nice middle ground is to set up a multi-signature wallet, which needs multiple keys, with a custodian, so if the custodian or the investor ever loses their key, they can easily access the wallet from utilizing additional keys. A good example of this multi-signature solution would be Casa, a provider of custodian storage solutions for digital wallets.

Although hot wallets are extremely convenient to use for buying, spending and selling crypto, there is a hardware wallet that rivals hot wallets: Ledger Nano X. Ledger Nano X improves upon its predecessor, Ledger Nano S, and its’ annoying USB cable and limited storage. The Ledger Nano X can hold up to 100 different cryptocurrency wallets with the help of Ledger Live and has a Bluetooth connection that enables investors to forgo connection via a USB cable.

In summary, KuCoin’s $150 million-dollar hack is a stark reminder of the dangers of centralized finance and hot wallets. Two solutions to Cefi and hot wallet hacking problems include using custodians like Casa to hold your private keys and using cold storage wallets like Ledger Nano X.

By Jacob Stelter

Uniswap’s “Crypto Stimulus Check” Sends Defi Market Into Frenzy

Crypto Stimulus Check Makes Investors Question Effectiveness of Government Stimulus

Weekly Analyst Thoughts

Uniswap Token’s “Crypto Stimulus Check”

Last week became a momentous week in Defi when Uniswap decided to drop 400 UNI tokens to anyone who ever used their exchange. The drop included anyone who even tried to use their DEX, even if their transaction failed. Most people in crypto are dubbing this airdrop the “crypto stimulus check,” worth roughly $1,200 when it was first airdropped, ballooning to $3,200 one day later, then finally finding price resistance around $2,000 soon after. The efficiency of this airdrop, in how it was immediately distributed to over 140,000 addresses, versus the many weeks of delays on the US government stimulus checks, is quite striking. Furthermore, Uniswap has enticed liquidity providers to contribute even more liquidity to their platform by offering four yield farming pools, pictured below.

Although the “crypto stimulus check” was an amazing development for all Defi users, the one thing it exposed is the lack of scalability on the Ethereum network, as some paid fees in excess of $60+ to turn their 400 UNI into ETH.

In summary, the “crypto stimulus check” was a pleasant surprise for Defi users, but if Uniswap wants to continue to grow into a powerhouse decentralized exchange, it must seek scalability solutions for its platform with Ethereum 2.0, considering the high Ethereum gas fees deter users from transacting on Uniswap.

By Jacob Stelter

Cream Finance: New Crypto Exchange Rivaling Uniswap and Balancer

Weekly Analyst Thoughts

Cream Finance: New Crypto Exchange Rivaling Uniswap and Balancer

Introducing Cream Finance, a new Defi liquidity exchange that is as robust as competitors like Uniswap, Balancer, and Compound. Cream stands for “Crypto Rules Everything Around Me” and its token jumped 145% just last week. Cream Finance allows the borrowing and lending of multiple cryptocurrencies and offers better yields than Compound Finance, as pictured below.

Cream Finance also allows liquidity providers to yield farm Cream on Balancer and Uniswap pools, pictured below.

Finally, Cream Finance has its own Uniswap and Balancer exchange, “Cream Swap,” that delivers yield farming rewards for being a liquidity provider on their platform. One of their liquidity providing pools has a 200% APY just for depositing a different type of Ethereum into a pool, as seen below.

In summary, Cream Finance provides a platform to borrow and lend a multitude of cryptocurrencies, yield farm and become a liquidity provider on their Cream Swap exchange, and yield farm in Uniswap and Balancer Pools.

By Jacob Stelter

The Iterations of Cryptocurrency Trading and What to Look For

The Iterations of Cryptocurrency Trading and What to Look For

The first iteration of cryptocurrency trading when Bitcoin was created in 2009 was peer to peer trading. Trading partners would meet in a physical location where they would trade cash for cryptocurrency. LocalBitcoins was a prominent platform to orchestrate these trades, however, trading partners began using alternate payment methods, like Paypal, for Bitcoin. Those who used alternate platforms later realized there was inherent “chargeback risk” in accepting Paypal payments for irreversible payments like Bitcoin, creating the need for a second iteration of cryptocurrency trading.

The second iteration of cryptocurrency trading was in the form of Cexes (Centralized Exchanges) like Coinbase, Kraken, Gemini, etc. These exchanges accepted multiple forms of payment: debit card, wire transfer, ach transfer and conducted trades on an orderbook where they would match sellers and buyers. However, Cexes were plagued with problems like social engineering attacks, sim swapping, and server problems, never mind users not being able to sign up for accounts during the bull run of 2017, crypto users not passing KYC/AML, and account closures for innocuous actions. The cryptocurrency space was in dire need of a third iteration of cryptocurrency trading, but there was not enough adoption for Decentralized exchanges with orderbooks.

The third iteration of cryptocurrency trading is where Uniswap comes into play. Uniswap is an iteration of cryptocurrency trading that allows users to trade any ERC-20 asset they want without orderbooks, having to make an account, passing kyc/aml, server problems, spoofing transactions (exchanges who fake their volume), risk of sim swap attacks or hacking risk. This third iteration of cryptocurrency trading is made possible by “liquidity pools,” assets provided on demand by liquidity providers in exchange for a 0.3% fee. A uniswap liquidity pool is made up of two assets, with 50% of each asset in the pool. The most common makeup is 50% WETH (ERC-20 token of Ethereum) and 50% of another token.

In conclusion, the progression of crypto trading has created the opportunity for Uniswap to provide a seamless experience for crypto users. While it is now easier than ever to trade crypto with liquidity pools, atomic swaps, the fourth iteration of crypto trading, are on their way to maturity, so be on the lookout as more of these swaps enter the ecosystem.

By Jacob Stelter